No Fault Carrier Subrogated Against Insured Party Whose Policy Lacks BRB’s

February 26, 2007

The Kentucky Supreme Court published Schmidt v. Leppert, finding that “Kentucky’s MVRA leads to the inescapable conclusion that Schmidt [was], in fact, personally liable to Nationwide for repayment of BRB because Schmidt [was] not a “secured person” under the MVRA.”

Schmidt admitted he negligently caused an auto accident in Kentucky. Schmidt, an Indiana resident, was insured by a policy of insurance with American Family Insurance Company. American Family did not do business in Kentucky nor did it provide basic reparations benefits. Nationwide Insurance Company, who had paid benefits on behalf of its insured, Leppert, sought recovery of those benefits directly from Schmidt.

Resolution of the case turned on KRS 304.39-070, which allows subrogation of reparation benefits directly from any person or organization, “other than a secured person.” A secured person is an owner or operator of a secured vehicle. In order to have “security” on a motor vehicle, an insured’s policy must include “basic reparation benefits.” Because Schmidt’s policy did not provide for the payment of BRB’s it did not qualify as “security”, and Schmidt was not a “secured person.” Because Schmidt was not a secured person, Nationwide could sue him directly.

As noted by the Schmidt Court, this analysis is the same as the one undertaken in City of Louisville v. State Farm for Kentucky entities opting out of the payment of BRB’s. If the security does not provide for the payment of BRB’s, the insured is not a “secured person” and is subject to personal liability. In Schmidt, American Family admitted it would indemnify him for any BRB’s he had to pay.

This is simply the same result reached in the days before the MVRA. Typically, the injured party would sue the negligent party to recover the medical expenses paid. If “at fault” the insurer would pay those sums due up to the policy limits. With the advent of the MVRA the personal insurer steps in and pays the first $10,000.00 of those payments. The MVRA now provides a procedure for the reimbursement of those sums in place of the tort system. However, it leaves the old tort system in place in those instances when the a person is someone other than a “secured person.”

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